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Waddie
09-11-2014, 03:03 AM
The Fed has just trashed the Municipal bond market by removing them from the list of high-quality liquid collateral assets (HQLA). This means cities and towns will often have to turn to Private Equity Underwriters (PEU) for the money to do those infrastructure projects people like John Smith and Norman Bernstein want so much.


In an inscrutable move that has alarmed state treasurers, the Federal Reserve, along with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, just changed the liquidity requirements for the nationís largest banks. Municipal bonds, long considered safe liquid investments, have been eliminated from the list of high-quality liquid collateral. assets (HQLA).

By disqualifying municipal bonds from the category of liquid assets, the biggest banks are likely to trim back their holdings in munis which could raise the cost or limit the ability for states, counties, cities and school districts to issue muni bonds to build schools, roads, bridges and other infrastructure needs. This is a particularly strange position for a Fed that is worried about subpar economic growth.

http://peureport.blogspot.com/2014/09/fed-favors-peu-funding-of-public.html

Coincidentally, newly retired Treasury Secretary Tim Geithner, the guy who bailed out those too big to fail banks, will be the new President of PEU
Warburg Pincus, one of the largest and oldest on Wall Street. PEU's usually make their money, like Mitt Romney, by borrowing the money to buy a company, loading the debt off onto the company, streamlining the company (you know what that can mean for jobs!) and then selling it at a profit, often over 30%.

http://dealbook.nytimes.com/2013/11/16/geithner-to-join-private-equity-firm/

Who coulda seen this coming? ........... the irony..........

regards,
Waddie

Phillip Allen
09-11-2014, 03:56 AM
reminds me of the constitution re-write thread and the simple minded suggestions... unless they are for intended consequences, of course

RonW
09-11-2014, 06:39 AM
I think your title should have been -- The bursting of the municipal bond market bubble..........

Which has been going on for a few years and is a direct result of the economy as well as the over extension and poor management of the municipalities.
Too much small government...

Dan McCosh
09-11-2014, 07:31 AM
Might remember Detroit is in bankruptcy court at the moment--largest municipal bankruptcy in U.S. history. The state government tossed the water department bonds--which serves about one third of the state--into the bankruptcy. Tax-backed bonds aren't all that safe if you refuse to collect the taxes.

RonW
09-11-2014, 08:25 AM
And Then What ? yea exactly, then what happens ?

These municipalities and the incompetent morons that run them, does what. They create a bond and borrow massive amounts of money and then build, buy, hire and pass out pay hikes. And after the money spending spree is over with, they now have to pay it back which takes many, many times longer then it did to spend.

And most of the time the payback is attached to increased property taxes.

And when the taxes get too high, people, business's, corporations have a tendency to vote with their feet and just simply move on to greener pastures with less taxation.
And that is exactly what is and has been going on with detroit, and detroit is by no means by itself.

Then what happens when they throw these bonds in on a bankruptcy and that wipes out the bond holders ? That is exactly what Obama did, which he had no authority to do to the bond holders of G.M. Then investors are going to refuse to invest in municipal bonds, and those that do will want a very high paying interest rate.

Somewhere I thought I just read that the state of michigan threw the water bonds that service a lot of michigan in on the detroit bankruptcy.
And the rating of new jersey just got down graded.

And contrary to statements of how terrible it is to shut government down, it beats the hell out of letting it continue till it ends up in bankruptcy.

Dan McCosh
09-11-2014, 08:46 AM
The quality of a municipal bond is entirely dependent on the faith and trust that the municipality will raise taxes to cover the bond, if necessary. If we're going to have a national sentiment which validates the notion of 'governmental shutdown', on a local and state level, as well as a national level, then the loss of that faith and trust can reasonably be expected to damage the safety of those bonds.

I wonder... just who (political party or ideology) is threatening the security of municipal bonds, by promoting the idea of compelling governmental shutdowns? It's easy enough to identify the bankruptcy proponents, since the governor took over the city to initiate the bankruptcy. The tax structure of Michigan was mainly the idea of George Romney, who re-wrote the property tax system while he was CEO of American Motors--which of course went bankrupt before Detroit. Detroit is still being looked at as an anomaly, but it is more solvent than Los Angeles, New York and Chicago, to name a few.

John Smith
09-11-2014, 10:57 AM
This is just another example of why we should stop bragging about our country and take steps to make it worth bragging about again.

I still think the energy giants, like Koch, would be wise to stop fighting new energies and invest in them. There is no reason that I can see why they cant' invest in new energies and maybe build some factories in Detroit to build windmills or solar panels, or better batteries.

Just because they inherited a coal business doesn't mean that have to stay in the coal business, or have that be their only source of income.

If they invested in new forms of energy for the future, they would have a substantial piece of that pie as it grows, would make up the income as coal use shrinks, and would have a much better public image.

It's been my opinion that we've been under taxed since Reagan. That is what caused our deficit and debt to explode. We often hear debate about the size of government. I've argued it is about the function of government. The fact is our government is like everything else; if we want quality we have to pay a fair price.

The internet we all enjoy and that has helped millions of businesses improve their business, is the result of government spending. The GPS we enjoy is also the result of government spending. Our infrastructure, part of the OP, is government spending. Want smooth roads with pot holes fixed? It's not free.

Waddie
09-11-2014, 11:28 AM
John Smith; I still think the energy giants, like Koch, would be wise to stop fighting new energies and invest in them. There is no reason that I can see why they cant' invest in new energies and maybe build some factories in Detroit to build windmills or solar panels, or better batteries.

Koch is a very diversified company. Not just coal. You'd be amazed at what they own. And sans a real national energy policy, investments in alternative energy is a real gamble, and impossible without massive government subsidies. I know big oil also gets tax breaks, but the difference is they could survive without them; prices would just go up at the pump. Here's some of what they own;

http://progressivenetwork.wordpress.com/2011/03/03/bigger-list-of-koch-brothers-products/


John Smith; It's been my opinion that we've been under taxed since Reagan. That is what caused our deficit and debt to explode. We often hear debate about the size of government. I've argued it is about the function of government. The fact is our government is like everything else; if we want quality we have to pay a fair price.

The combination of excessive spending and low taxation is how we got in this mess. It isn't an either/or situation. It's both. In exchange for all those campaign contributions corporations want tax breaks in return, and policies that favor their bottom line. And they got them. And the politicians bought votes by handing out taxpayer money like candy, signing things like pension agreements they knew would cripple government but wouldn't come due for a generation. Well, that generation is here and wants their money.

So where we are now is between a hard place and a rock, fiscally speaking. And while I would understand the Feds removing downgraded municipal bonds from the list on a case by case basis, that's not what they did. They removed municipal bonds in general from the "high quality liquidity" list. That tells me they don't trust the banks nor the municipalities. Not a good sign for infrastructure projects, or any other obligation they may need bonds to fund.

regards,
Waddie

John of Phoenix
09-11-2014, 11:51 AM
The Fed has just trashed the Municipal bond market...FYI, the muni market is totally UNFAZED. Absolutely UNCHANGED.

Nice try - fear, hate and lies.

WSJ
Sept. 9, 2014 1:43 p.m. ET

WASHINGTON—Federal banking regulators said they plan to revisit a decision to exclude municipal securities from a postcrisis rule aimed at ensuring banks have enough cash on hand to survive a crisis, saying they are open to allowing some debt issued by states and localities to count as a "safe" asset.

Top officials from three bank regulators—the Federal Reserve, Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp.—told Senate lawmakers Tuesday they would consider altering a rule completed last week that requires banks to hold enough cash or cash-like assets to fund their operations for 30 days. Previously, only the Fed had expressed a willingness to alter the rule.

http://online.wsj.com/articles/banking-regulators-open-to-including-municipal-bonds-in-bank-financing-rule-1410284586

RonW
09-11-2014, 01:01 PM
JOP -
Nice try - fear, hate and lies.

Dirty reds spreading hate, discontent and fear.........all is well, ..........buy your bonds.......detroit might have some at bargain basement prices.....

I wonder if we can find a race card hidden somewhere in the subliminal message from the dirty reds .....